| Agarwal: In the thick of things
New Delhi, Oct. 28: The BJP-led central government is in a fix about an application filed by a Mauritius-based holding company Twinstar Holdings which states it has already taken a 55 per cent stake in Sterlite Industries and wants to raise this to 75 per cent.
Both finance minister Jaswant Singh and disinvestment minister Arun Shourie are learnt to be perturbed by this development.
Normally, such a mundane issue would not have bothered the government’s top economic managers but for the fact that Sterlite in the last two years has bought two blue-chip PSUs — Balco and Hindustan Zinc — and the shareholders’ agreements with the government preclude it from selling these firms to any other company for a three-year period.
Technically, it isn’t illegal for Sterlite to be bought over by a Mauritius-based fund, nor should the government normally have any objections to this stake being raised to 75 per cent.
However, the government officials say that with a 55 per cent stake in the firm going to a different promoter, it means in effect Balco and Hindustan Zinc have also changed hands.
According to a note prepared by the finance ministry’s foreign investment unit (FIU), a copy of which is with The Telegraph, Twinstar is actually owned by UK-based Vinod Shah through another financial cut-out — Volcan Investments Ltd — which owns a 100 per cent stake in the Mauritius based fund. Sterlite till now was known as a metals firm floated and controlled by the Agarwal family.
Twinstar, which had taken a 19 per cent stake in Sterlite in May 2000 at a cost of Rs 10.57 crore, sought permission from the finance ministry in July this year to raise its stake to 75 per cent, stating it has already increased its holding to 55.15 per cent through the automatic approval route, something which is not closely monitored by the government.
The 36 per cent increase in the stake through the automatic approval route works out to Rs 1,008 crore market capitalisation at current rates. While the 20 per cent stake hike now being sought would work out to Rs 560 crore.
The matter came up before top officials last month and since then the issue has caused a flutter in government circles.
The case is being seen as similar to the controversial Centaur Hotel, Mumbai sale where the Batras had bought the hotel from the government and, within weeks, sold it at a whopping 40 per cent profit to the Sahara group.
The sale conducted last year saw allegations of impropriety being levelled against the government by MPs of the ruling coalition itself.
With elections round the corner in Chattisgarh, the issue is considered potentially explosive as Balco’s sale to a private firm at a throwaway price still evokes bitter responses from the electorate there.
Balco itself was sold for a mere Rs 551 crore two years back amidst an uproar in the media and Parliament. The government had valued the company at just Rs 1,100 crore, partly on the basis of a report filed by an income tax valuer -- P. V. Rao who had no prior experience in industrial valuation and who finished his job in just seven days.
Analysts believed the company’s true valuation should have been somewhere between Rs 2,300-3,500 crore.